Global economy: Asian factories take Omicron risks in stride, for now

An employee inspects a printed circuit board on the controllers production line at a factory in Gree, following the coronavirus disease (COVID-19) outbreak in Wuhan, Hubei province, China, on August 16, 2021. China Daily via REUTERS

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  • Chinese private PMI for December grows at fastest pace in 6 months
  • Japan, South Korea: factory activity continues to grow
  • Most other Asian economies show solid expansion in activity
  • Supply constraints and rising costs continue to cloud the outlook

TOKYO, Jan. 4 (Reuters) – Activity at Asian factories increased in December, with companies picking up on the growing number of global cases of the novel Omicron coronavirus variant, although supply constraints persist and the surge input costs cloud the outlook for some economies.

The rising rate of infections around the world has raised eyebrows among policymakers, with outbreaks in China forcing some companies to halt production and threatening to disrupt production from memory chip giants like Samsung Electronics (005930.KS). Read more

For now, however, Omicron’s direct hit on production appears moderate, according to polls released Monday and Tuesday.

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Chinese factory activity grew at its fastest pace in six months in December, according to the Caixin / Markit Manufacturing Purchasing Managers Index (PMI) earlier today. Read more

The results of the private survey, which focuses more on small businesses in coastal regions, are consistent with those of China’s official PMI which indicated a slight increase in factory activity. Read more

Other parts of Asia have also performed well with the expansion of factory activity in countries such as Vietnam, Malaysia and the Philippines.

“Manufacturing PMIs and current trade data show that the export-oriented Asian industry gained momentum at the start of the year,” said Alex Holmes, Emerging Asia Economist at Capital Economics.

“While the Omicron variant poses a key threat to the outlook, it is unlikely to disrupt the industry as much as Delta did in the third quarter,” he said.

In Japan, the world’s third-largest economy, manufacturing activity increased in December for the 11th consecutive month. And South Korea’s flagship exporter has seen its major factories enjoy the fastest pace of expansion in three months, according to surveys.

“We expect the recovery in exports and investment in Asia to be supported by the continued global recovery, and Asian manufacturing PMIs will remain moderately strong over the next few months,” Morgan Stanley analysts wrote in a report. research note.

Some economists have warned, however, that supply shortages and rising input costs remain risks, especially for export-dependent countries like South Korea.

“Given South Korea’s importance to the automotive and electronics industries, substantial improvements in global supply chains will be needed before we see a significant acceleration in manufacturing growth,” said Joe Hayes, senior economist at IHS Markit.

Japan’s PMI index stood at 54.3 in December, remaining above the 50 Mark threshold indicating an expansion in activity, but below November’s 54.5 as growth in new orders slowed down. Read more

South Korea’s PMI rose to 51.9 from 50.9 in November to mark the 15th consecutive month of expansion, as rising domestic demand offsets weak overseas sales. Read more

Indian manufacturing activity continued to grow in December, but at a slower pace than in November, as high price pressures remain a concern. Read more

“The Omicron variant poses short-term growth risks by delaying the resumption of consumption, but higher vaccination rates in Asia could help limit damage to growth compared to the Delta wave,” analysts said by Morgan Stanley.

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Reporting by Leika Kihara Editing by Shri Navaratnam

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